Never before have I heard an airline CEO give ancillary revenue such prominance when it comes to explaining a good financial result. Read the quote below from Maurice Gallagher, Jr. President & CEO of Allegiant Travel Company (ALGT), a US Carrier that regular readers of this blog will get used to hearing me refer to frequently.
“Our 23% operating margin this quarter however puts us back on track towards our commitment of late 2006. How were we able to generate such a large increase in margin from 7% in the third quarter to this 23% level? Our focus on increasing revenues was evident in these results. In spite of a difficult economy we were able to not only hold overall revenue per passenger compared to the third quarter but increase it from just under $120 to $120.50. Over the past year Ponder and his team have focused increasingly on our ancillary revenues and we have seen a 50% increase during this timeframe from a low $20 range to our current $32 plus. These ancillary revenues were a critical part of our December results.”
And then the following quote from Ponder Harrison – Managing Director Marketing & Sales.
“And as also expected, ancillary revenue was once again a predictable and positive contributor. Most impressive however was the year-over-year gain in total ancillary revenue of 76% for calendar year 2008 and 51% for the fourth quarter. Respectively ancillary revenue as a percent of base airfare revenue was 35% in 2008 and it also grew to 40% in the fourth quarter. Despite the decline in stage length and relatively flat yield environment, ancillary per passenger grew 35% in 4Q reaching a level of $32.85 versus just north of $24 in the fourth quarter of 2007. On a sequential basis ancillary once again posted positive gains for the quarter and for the full year ancillary climbed 37% finishing 2008 at $29.43 per passenger as compared to a $21.53 level per passenger in the prior period. “
Managers responible for ancillary revenue generation at every other airline must be looking at these numbers and hoping that their own boss hasn’t seen them. The potential in this area for every airline is massive, and it is simply unacceptable to use the argument that because your business model is different to Allegiant your airline can’t expect to generate significant ancillary revenue. The numbers will differ, the types of ancillary products will differ, the ways in which they are presented to the passenger will differ, but the goal of having your own CEO credit your contribution and the contribution of ancillary revenue when announcing impressive financial results should not differ.